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Ahmed Dogan, the notorious kingmaker in Bulgaria’s political underground, has surfaced as a legitimate owner of TPP Varna, which marks a milestone in the history of the country’s transition. Immediate questions arise – why now? Why this deal? And what does it entail for Bulgaria’s political landscape?

I have been following the progress of the TPP Varna deal for a long time because it is a live edition of Bulgarian grand corruption and the capture of the state. Sooner or later, the “proxies” in the picture step aside and give way to the real owners.

There are several kindred deals in the making at present – one of the most visible ones being the CEZ Bulgaria deal, involving front and backstage players, including well-known Bulgarian businessmen, famous politicians who provide the political cover and a bunch of mediators in banks, law enforcement, the judiciary, senior government officials, media and so on.

First, here is some background of the TPP Varna deal, which starts as few thousand leva invested in equity and ends up in more than 200 million leva worth of acquired assets.

What we see today has a long history of preparation work. It starts with the possible complicity of CEZ Bulgaria top managers at the time, who knowingly chose not to act and do not see through the business upgrade of Varna TPP, leading to a collapse in asset value. Moreover, CEZ’s managers opted to decommission essential blocks, informing the system operator, ESO.

This is a key prerequisite if someone wants to buy in at a very low rate.

Through turns of fortune I have been privy to the 10-year-old preliminary studies to overhaul the TPP and turn it into gas to power generation. The only major hurdle was the prohibitively high price of natural gas, which was overcome a few years ago when both oil and natural gas prices collapsed, while emission quota prices soared. It is not difficult today to justify such an endeavor; suffice it is to watch the decline in the export of electricity from Bulgaria to Turkey and Greece, as both countries turned on the gas turbines for power generation to the max. At that point, selling the TPP Varna blocks for peanuts could hardly come out as a good management decision. Let’s not forget that CEZ is a state-owned company and such “deals” are no exception.

The second stop in the grand corruption saga in the TPP Varna deal was securing the project financing and the needed credit lines. No matter how low these assets could be valued, and how strong is the commitment of CEZ’s management, the TPP is still worth a lot of money. There is no normal bank that would agree to lend takeover money. But in Bulgaria at least three banks with Bulgarian owners are known to be willing to cast a blind eye and engage, aware that BNB banking supervision would remain idle if overriding politicians’ interests are involved.

A special purpose company “Sigda” was set up in the interim with the sole objective – to acquire TPP “Varna” with an authorized start-up capital of BGN 5,000. It is worth recalling that this amount corresponds with the extent of the shareholders’ responsibility as a limited liability company. This in turn validates the risk exposure level to the banks willing to the extend the loans. The three banks often face liquidity crises, but the state has been always stepped in ready, able and willing to inject funds.

According to CEZ consolidated financial statements in Prague, the sale proceeds from the Varna TPP transaction are reported at EUR 48 million. Furthermore, at the time of the acquisition, more than EUR 20 million in cash was deposited in TPP’s bank accounts. Theoretically, the risk managers of the banks should consider collateral in undervalued assets as an additional hedge as after simple remedial action these assets should easily recover. However, at the time, when the decisions on the quality of the loan collateral, the assets were non-performing – essentially the TPP was not a going concern. Hedging such a high-risk loan via an above market level interest rate, 7.5%, is hardly the solution as no interest could be high enough to cover the risk of default on a loan collateralized by non-performing assets. By total ‘coincidence,’ a pledge on nearby real estate owned by a neighboring oligarch emerged in the deal at the right time. Once again – let’s repeat – the TPP’s assets at the time were non-operational, i.e. “dead meat”.

This is corruption per se at the level of banks and bank supervision, the State Agency for National Security (SANS) and its financial intelligence. Such acquisitions are impossible on borrowed capital and “proper” funds come into play. Yet all state institutions meant to act as watchdogs choose to close their eyes and look away. Nobody has bothered to investigate the origin of funds or money laundering schemes.

The entire state has effectively been captured and defense functions suspended. Only three individuals in the country – Dogan, Peevsky and Borisov – can do that.

Next in the deal line of action come the regulators – as ultimately it all boils down to market concentration in a national security sensitive sector – the energy sector.

The Commission for the Protection of Competition (CPC), at the due time, reacted with extreme promptitude. For a transaction involving assets worth over 96 million leva, the CPC’s move could be considered as truly innovative – the board decided not to pass any judgment on the deal compliance with the argument that the turnover of all the participants in the supposed concentration does not exceed BGN 25 million and the turnover of the target of the acquisition does not exceed BGN 3 million for the previous (2016) financial year! Put in a simpler format – the commission reasoned that the TPP acquisition is too small a transaction to have any impact on competition, henceforth the deal could be concluded without delay – a sheer parody of independence and regulatory impartiality at the CPC.

The Commission of Energy and Water Regulation (KEVR), too, acted quickly and expeditiously in issuing a license to the new owners for electricity trading by the TPP “Varna”, unanimously rubberstamping the presented business plan of the plant until 2022. No comments; no objections aired.

Shortly after the completion of the transaction, the huge cash amount in the company, over 40 million leva, was immediately disbursed to repay debt to banks and lenders. Despite the “ingenuity” moments behind the conceived scheme, there is one important element missing – guaranteed and imminent revenues. There the idea with the cold reserve comes into the limelight and fits into the pattern.

To this end, the project team had to initiate an immediate reshuffle in the top management of the ESO, as the system operator under normal conditions would have found it impossible to keep eyes shut and endow TPP Varna with the rare privilege of cold reserve affiliated cash streams. Prior to this act, Messieurs Dogan and Peevski orchestrated the voluntary renunciation of TPP Maritza East-2’s cold reserve contract, assisted primarily by Ilko Zhelyazkov. This act dealt a lethal blow to the already rapidly denigrating financial state of the state TPP. Drying up of one of the few, if not the only, solid revenue sources was a sheer suicidal shift. The plant’s losses today exceed 200 million leva, but the masterminds behind the TPP Varna acquisition are diverting blame to the rising price for emission quotas.

Here is an interplay of two factors – the first: the lack of clean up investments in full modernization of the blocks, which dramatically rise operational costs, and the second: giving up the cold reserves contract with the ESO. Maritsa East-2 TPP plays a pivotal role in balancing the national energy system, yet it finds itself “on the ropes”. To cover up the state capture and the corruption along the value chain and patch up the cracks, a working group from the Ministry of Energy has been appointed to crisis manage the institutional loss of face.

One more of the classics in the history of the Bulgarian oligarchy during the transition – for a new oligarch – Dogan – to be born, a state-owned enterprise – Maritsa East-2 TPP – has to die.

The consequent stream of events is a simple routine – the ESO with lightning speed organized a cold reserve tender – the term being just three days!? The preordained ‘winner’ – TPP Varna – no competitor – since has a guaranteed stream of tens of millions in revenue without the need to operate and invest. Not sure whether the ESO has ever checked the coal in stock as the management could always claim to have a valid gas supply contract as backup fuel. To help understand the context against which the stand by readiness of the TPP should be judged, note that the probability of using the cold reserve is minimal until mid-winter, as there is a significant excess in base load generation capacity given the consumption levels.

This is the story behind TPP Varna’s change of ownership. Some essential details are spared, but the general picture is given.

The new and important question today is why one of the most prominent figures in the Bulgarian transition – Ahmed Dogan – has decided to come out in the open.

The TPP Varna deal is not an exception – there are similar deals in the pipeline, indicating that the country is entering a pivotal moment of restructuring within the elite and redistribution of the asset base. We have come to a stage where political oligarchs are openly legitimizing their power status and hidden wealth. Such radical shifts entail high risk of triggering extreme turbulence in the power base – Bulgarian oligarchs are likely to closely track and follow the fate of their Russian role models.

At first sight, Dogan’s move into oligarch status seems irrational, as his role and authority seem uncontested. Yet the arrogance in such a move could hardly conceal its forced nature. The Master of the Boyana Sarayi, as the informal leader of the Movement of Rights and Freedom Is called, most probably believes that the moment is ripe as the general public is under deep anesthesia and unable to revolt. The situation is volatile, and with an uncertain future, Dogan has decided to act now. He is neither eternal nor omnipotent. His consigliere Peevsky had already attained an independent status and has managed to transform his power assets into personal wealth, while the patron has continued to live in the shade. Relations between the two are no longer between a boss and his subordinate.

It is when, in all likelihood, the informal leader of the MRF, while weighing different scenarios, might have decided to legitimize his transition times’ wealth that could later be inherited.

Sooner or later, such deals end up being critically reviewed by the NRA, as the arbitrary asset reappraisals and acquisition of assets worth hundreds of millions for a few thousand leva often have a criminal footprint in tax evasion and money laundering.

It is never too late to challenge the wealth of an overnight-born oligarch and dig further into potential financial and tax crimes.

Dogan and Peevsky ‘s move to shed light on their wealth could also mean that they believe Borissov’s time is over; they do not need him anymore and imply he might do the same in legitimizing his personal wealth. There is one major difference – while the two fresh oligarchs conveniently operate behind the scenes, Borissov is in the spotlight, and an arrogant copycat of their latest moves could prove politically lethal for him.

Dogan and Peevsky are also openly positioning themselves in the energy sector as Gazexport’s future strategic partners. TPP Varna is already used as a springboard for future grand deals with the Russian gas giant – negotiations for direct supplies and investments are underway. This spells the end of Bulgargaz.

The transition ends – the criminal wealth surfaces, whitewashed in the capture state environment.

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